It is interesting in my mind how this U.S. congressional bill on codifying sanctions seems to have changed the whole mood music in D.C. but also the market over U.S.-Western sanctions around Russia.
I think up unto a few weeks ago the consensus was that in the worst case scenario there would be no new sanctions levied, and that the best case and likely scenario under the U.S. President Donald J. Trump administration was that sanctions would be removed or rolled off to reflect Trump’s desire to warm or improve relations with Russian President Vladimir Putin.
Then we see the surprise push a week or so back by the U.S. Senate to codify and extend sanctions. This still needs to be approved by the U.S. House of Representatives and signed off by the president, but momentum seems to be on the side of new sanctions. It could be that as Russia-gate is proving that anything to do with Russia in D.C. is toxic, it will be hard for Trump to block these. Rather by pushing the envelope out on sanctions, some in the G.O.P. might hope to finally draw a line under the Russia saga by proving their own hawkishness on the issue, and then buy Trump some political capital on the issue to eventually sit down with Putin (as now expected in Germany in July).
For the U.S. administration charged with implementing/policing sanctions there is perhaps mixed feelings on this one. There is I think appreciation that Congress is rallying behind their cause, and looking to beef up the regime, to ensure delivering on its objectives to ensure a change of behaviour by Russia (both in Ukraine and meddling in U.S. politics, and elsewhere) but at the same time nervousness over the codification of sanctions which they likely view as reducing their flexibility and room to negotiate with Moscow. I think a line is that now why would Moscow compromise if it knows that only Congress can ease sanctions (e.g. Jackson-Vanik amendment), and the Trump administration is powerless?
I wonder herein whether the Trump administration might look to pre-empt all this by introducing another iteration of sanctions, initiated by the executive, to perhaps buy time on the Congressional move, but also demonstrate a hawkish response still to allegations of Russian involvement in trying to influence the US election – albeit Trump still seems to be playing down all these fears.
Interestingly, all this comes as President Petro Poroshenko of Ukraine is visiting Washington, D.C. this week, and perhaps might be expecting some new policy initiative from the Trump administration. There has been talk of a new US-Russia negotiating tack over Ukraine, similar to the Nuland-Surkov process, and wonder if some new WH driven sanctions action could set the scene for that, allowing the administration to negotiate from a position of strength.
Not sure what Poroshenko is going to get from this – likely it will give Trump political cover to finally meet Putin in Germany in July.
Maybe Poroshenko will push for some slack to be cut with the International Monetary Fund over the latest tranche the programme, with land reform delayed (kind of expected) and pension reform “staged” with near-term hikes in the fall, but only increases in the mandatory pension age from 2020, after the next presidential and parliamentary elections. That’s three years down the line – and a huge time in the Ukrainian political setting.
Poroshenko might push again for the US to provide defensive weaponry to Ukraine again – at least to see where the new administration is on this.
I guess he will also look to further encourage Congress (or the House now) to push ahead with the latest Russian sanctions initiative.
But it is really noticeable how the mood in D.C. has changed, with the rhetoric and actions all about doing more, not less, to counter the threat from Russia.
I think understanding that more sanctions action is likely from the US administration – either the Executive or Congress – seems to be in the minds of the Russian authorities in bringing forward this latest Eurobond issue. This deal had been thought as perhaps business for later in the year – and it also seems to have again been brought forward from Friday.
I guess the logic to wait to later in the year, if you assumed sanctions moderation, was that Russia would benefit from yield compression as a result. But if you now do not expect that, why wait to issue, as you may as well just take advantage of current cheap financing conditions, and get financing in the bag. And I think this issue is much more about politics – demonstrating an ability to issue, and tap Western demand from institutional investors – despite the sanction actions of the US.

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